Stock collapse and $12,000 gold?

Commentary: Two certified doomsters are (slightly) more cautious

PeterBrimelow

NEW YORK (MarketWatch) — After six down weeks and a savage slump on Tuesday, the specter of a 2008 Crash haunts Wall Street. But two certified doomsters are (slightly) more cautious.

This is the problem, as summarized by the latest Aden Forecast:

“Many respected analysts are warning that another financial crisis could be on the horizon similar to the one in 2008. They claim that since the 2008 meltdown was not allowed to end naturally, the conclusion is still coming. This is a real possibility since the fundamental, underlying factors that triggered the crisis to begin with still persist. Another possibility is just a renewed recession.”

One service that indisputably did call the Crash of 2008 (“a financial tsunami”) was Harry Schultz’s International Harry Schultz Letter. Schultz had a long and checkered career, especially as monitored by the Hulbert Financial Digest in its closing phase. But its last years were brilliant. Greatly to the disappointment of columnists seeking colorful copy, the letter closed last winter after 45 years of publication. (See Jan. 10 column.)

However, Schultz still publishes a monthly essay in the Aden Forecast. The good news: As of last week, he doesn’t seem to see another Crash…yet.

Schultz has always had a scatter-shot style, combining eccentricities and insight, and this tendency seems to have become more pronounced. This is his only comment on the stock market:

“Chart talk: Dow Jones Industrial Average
DJIA, -0.32%
is in a multi-year 2000-2011 BT (broadening top). It suggests a new high, followed by a collapse. Broadening Tops are often seen in individual stock charts, rarely in a stock average. Is credible…”

This fits generally with Schultz’s view of gold and the economy — which, using a favorite device, he expresses by quoting a surrogate:

“The run-up to the peak in markets like gold is between now and 2015. I think it will all be over by 2015, a lot of it depends on how aggressively paper monies get printed from here on in. I think $3,000 is an absolute minimum gold target. I can believe in targets certainly above $5,000 and it’s theoretically possible to go to $12,000…If we get as high as $12,000, a lot of very bad things will have happened to our economies.”

In a hopeless effort to forestall the usual abuse in the comment thread, I repeat: Schultz really did foresee the Crash of 2008 (plus, for that matter, the Great Inflation of the 1970s). And his record, according to the HFD, was latterly very strong.

His new hosts at the Aden Forecast also have a strong record by HFD count. I named Aden Forecast Letter of the Year in 2010. (See Dec. 30, 2010 column.)

Unlike Harry Schultz, however, Pamela and Mary Anne Aden’s world view is comprehensive, systematic and closely-reasoned. It’s ultimately just as apocalyptic, but the Adens explicitly temper it with disciplined observation of and sensitivity to short-term market trends, which they acknowledge can often be paradoxical.

In the most recent Aden Forecast, they write:

“What concerns us is that interest rates are now signaling a major trend reversal to the downside…If that proves to be true, it’ll be a very bearish sign for stocks. In other words, this interest rate change could well be providing an early warning that some sort of crisis, or another recession, lies ahead. If so, then stocks could be headed for a steep fall.”

The Adens’ response to this is measured:

“All things considered, we feel this is a time to play it safe and lighten up on your stock holdings. Since the major stock trends are still up, we recommend keeping a smaller 15% position in the strongest stocks (down from 25%), but sell the weaker ones.”

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